The proposed budget for the fiscal year 2020-21 is destined to be one of the most critical ones in the recent history of Bangladesh.

The reasons are the effects of the ongoing pandemic on the global economic scenario and namely on the economy of Bangladesh.

So the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), the Dhaka Chamber of Commerce and Industry (DCCI), and Business Initiative Leading Development (BUILD) urged the authorities concerned to remove certain proposed provisions in the VAT Act 2012 and Income Tax Ordinance 1984 in a joint press release.

They made the request to maintain a business-friendly tax regime amid the Covid-19 induced economic crisis.

The pandemic has caused a supply-shock recession. The related uncertainty may slow the expansion of global value chains by at least 35 percent, the business bodies said. 

"It is clear that shrinking production at firms worldwide will create a recession unlike any we have seen." 

Given the importance of broken supply relations in the current downturn, this recession is likely to be unique. 

The collapsed domestic consumer demand in the Organization for Economic Cooperation and Development (OECD) countries is already severely disrupting exports of Bangladesh.

Local businesses here are now struggling to survive sales drops of 30-90 percent as well, after a 66-day nationwide shutdown. 

Almost every sector of the economy from telecom to housing to transport to  Fast Moving Consumer Goods (FMCG) to transport have seen collapsing demand. 

The government, through its budget, must find ways to provide desperately needed liquidity and relief to as many business sectors of the economy as possible, throughout the whole economy, including domestic and export sectors, the business bodies said.

"So the only option for policymakers is to spur growth in as many sectors as possible, which is exactly what stimulus programmes are designed to do."

However, there are specifically seven areas in this budget which they feel will hold the businesses back.

They will increase the financial burden on businesses, make doing business more difficult and expensive and also penalise compliant businesses. 

They found the provisions of consumption based input rebate and depositing the double amount of disputed value added tax (VAT) for filing an appeal difficult to comply with and implement.

So they requested to remove the provision of consumption based input rebate and to reverse the doubling of disputed VAT payable on appeal to 10 percent from the proposed 20 percent.

They also asked for the removal of the restriction on input VAT rebate on legitimate business expenditures.

They said, withholding VAT totally distorts and complicates VAT mechanism and asked for the removal of the reintroduction of extensive withholding VAT. 

The stakeholders also asked for removing the restriction on the allowable promotional expense – to 0.5 percent of turnover.

"This is a legitimate business expense. For many sectors like FMCG, telecom, pharmaceuticals, this expenditure is integral to the business model, and will lead to large disallowance and increase in tax liabilities which is unjustified," they said.

They also proposed to rationalise tax deducted at source (TDS) or advance income tax (AIT) – cutting it to 3 percent from 5 percent and to 6 percent from 10 percent, for example.

For unapproved or unfunded gratuity schemes, gratuity payments to employees have now been made taxable. 

The business bodies said, for most employees, this is their life savings. So they requested to remove the provision of tax on gratuity.